The telecom phenomenon that helped earn “LOL” and “OMG” spots in the Oxford English Dictionary seems to be past its peak. Text messaging is on the decline, according to a new study by mobile industry analyst Chetan Sharma. That doesn’t mean teenagers are going to stop burying their noses in their iPhones at the dinner table— cell phone users are actually finding free solutions that offer most of the efficiency of texting without the annoying monthly charge.

During the third quarter of 2012, the average American sent 678 texts per month. That’s a big number, but it’s actually the first time America’s texting habit has declined, down from a peak of 696 texts per month over the summer. Experts say the decrease is likely a sign of a permanent shift away from SMS messaging carried over the same network we use to make phone calls.

“With social networking and other platforms, they really take the messaging feature away from that usual channel,” says Wayne Lam, a wireless communication analyst at IHS Technology. “Consumers are messaging, but text messaging as a whole is competing with other forms of messaging.”

Five years ago, cell phone owners had two options for communication: call or text (maybe email if you were fancy and had a Blackberry). Now, with smartphones having a majority stake of the mobile phone market, most users have plenty of options for text-based communications. Facebook Messenger allows users to talk with their Facebook friends in real time on the go. The messaging client WhatsApp, which works similarly to a phone’s default texting program, has been downloaded 100 million times on Android phones alone. All iPhones now come preinstalled with iMessage, a texting client that lets users communicate without using up the texts on their carrier’s plan.

All these programs rely on wireless Internet connections or cellular data networks instead of the traditional voice networks that regular texts are sent through. These free options are cutting off a key revenue stream for telecom companies, which generate an estimated $20 billion from texting each year. Tactics like charging users 20 cents per text have maintained incredibly high profit margins in the sector but has also given way to competitors that are starting to challenge traditional messaging.

“Texting is the last piece of the old business model, which is a voice-centric business model,” Lam says. With both talk and text fading in importance, data has become the new golden goose for cell phone companies. That’s why carriers have been happy to dole out unlimited minutes and texts recently but have mostly done away with unlimited data plans.

The rationing of data will take on greater importance in 2013 as more cell phone functionality switches to the data network. Carriers are aiming to introduce a network upgrade called voice over LTE as early as next year. Once that’s in place, voice calls will be handled over the data network, which is how programs like Skype and Vonage already function.

The switch should lead to clearer and more consistent calls as cell carriers are able to streamline their networks, which are currently hobbled by having to split data and voice needs. Instead of having separate charges for minutes, texts and data, users might just order a monthly data allotment that encompasses all cell phone functionality.

But as consumers continue to become more dependent on their smartphones, a data-only bill won’t necessarily lead to lower prices. More likely, consumers will just fret over their data limits the way they have over their phone minutes or texting limits in the past. And cell phone companies, some of which regret ever making unlimited data a customer expectation, will continue to pull in huge profits.

“Most operators will be just fine,” Sharma says. “It’s just that their revenue has shifted to a different kind of environment versus traditional voice and messaging.”

"But
as consumers continue to become more dependent on their smartphones, a
data-only bill won’t necessarily lead to lower prices."

Truly the most insightful thing said in this entire article. If you look back over the last 15-20 years of wireless pricing, the entry price has stayed roughly the same ($40-50) but the types/amount of services provided has increased.

Obviously, you can do all of your texting over your existing data plan. But how about all of your voice calls as well? Take a few minutes and research the data usage of a modestly compressed, high QoS voice connection. Let's just say that the 500 minutes you're currently spending $40 on would use roughly 80 cents of data from your $25/month data plan.

Which leads us again to the article's quote: functionality may increase, minutes may increase or go unlimited but the price will not. In fact, price doesn't drop significantly unless you switch to one of the Sprint-based MVNO's. And that should tell you something about how well competition is working in this industry.